Open finance is the next step of open banking, which has already provided transparency and more opportunities in the finance sector. However, it also comes with risks.
That is according to Sheldon Mills, director of competition at the Financial Conduct Authority. He made the statement in a speech at an event hosted by The Investments and Savings Alliance on Monday November 18.
Mills began by saying that open finance is an area rife with opportunities. It presented SMEs and other businesses with a chance to access and share data with third party providers that can help them leverage it, he argued.
The FCA director also added that open finance can empower customers to make better decisions as they would have access to more information and better access to financial services.
Another benefit would be that SMEs would be presented with an opportunity to get better cash flow control as open finance would improve integration payment, accounting and lending platforms for internal management.
But, Mills added, there are challenges with open finance.
He said, “With greater access to a wider range of data, the potential for open finance to help facilitate personalised pricing to almost an individual basis could result in winners and losers: some may see more competitive outcomes while for others, their personal data leads to greater discrimination.”
A second risk identified by Mills is affinity to technology. “Access gaps may emerge between the technologically savvy and those who cannot adopt those technologies,” he said. Access to markets, and market structures feeds into a consideration of how markets and competition will function in practice within an open finance environment. Take insurance for example, where pooling of risk is critical to delivering insurance for those most at risk. This could be threatened in a world where those consumers are priced out of the market.”
Moreover, Mills warned that increased utilisation of big data could leave businesses exposed to the risk of misusing private data. He said open finance would present increased challenges of cybersecurity to protect people’s privacy in an ethical and secure way.
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